Where Do Indians Invest their Money? Here’s a Break Up

Indians are moving away from traditional asset classes like gold and real estate and moving towards financial assets such as stocks and mutual funds.

The Individual wealth in India rose at a double-digit pace during the financial year ended March 2017 and created a higher number of high-net-worth-individuals during the period.

The net individual wealth in India stood at Rs 344 lakh crore during 2016-17[2], an increase of 10.9 percent from the financial year-ended 2016.

The nation also created high-net-worth-individuals with a growth rate of 9.5 percent to 2.19 lakh during the period. That compares with the global average of 7.5 percent Asia Pacific region’s 7.4 percent, quotes Capgemini’s 2017 World Wealth Report.[1]

The research firm calculated Individual wealth with the methodology of considering only wealth held by individuals having $1 million or more investable wealth and excluded the wealth held by government and institutional investments.

Where Did Indians Invest?

Most Indians invested in Financial Assets such as fixed deposits, mutual funds etc., and physical assets such as real estate and jewellery. During April 2016-March 2017, Indians shifted their focus more in financial assets than tangible assets.[2]

This is because of the new reforms that were initiated by the Modi-led government such as the demonetisation, introduction of Goods and Services Tax (GST) that replaced indirect taxes and the implementation of Real Estate (Regulation and Development) Act (RERA).

Among Rs 344 lakh crore wealth that was created by Indians in the March 2017-ended financial year, nearly 59 percent of it was invested in financial assets and the remaining in physical assets. That compared with the 57 percent of fund infusion in financial assets among the wealth created in the year-ago period.[2]

The individual wealth in financial assets rose 14.6 percent on a yearly basis to 203 lakh crore during 2016-17[2]. The segment was primarily driven by the rise in the infusion of capital in current deposits after demonetisation and the growth in investments in mutual funds and direct equity, as the Indian equity markets witnessed a positive performance.

About 67 percent[2] of the individual wealth that was invested in financial assets were infused in equities, fixed deposits, insurance and saving deposits.

Although mutual funds and current witnessed double-digit growth in capital infusion and accelerated the rise in wealth in financial assets, only 4 percent of Rs 203 crore was invested in these segments. On the flipside, the cash reserves and NRI were the segments in financial assets that witnessed a decline. The individuals in India had a cash reserve of 13.35 lakh crore between April 2016 and March 2017, a drop of 19 percent from the corresponding period a year ago.

This was primarily because of the note ban that Prime Minister Narendra Modi had announced in November 2016, which lead to more savings deposits in banks and other deposits.

For investors looking to put their money in financial assets, instruments such as ULIPs are worth considering because of their dual benefits of capital appreciation and insurance protection. Moreover, under the government’s Exempt, Exempt, Exempt tax regime, they have an edge over other instruments from a tax perspective. Consider a ULIP such as AEGON Life iMaximise Insurance Plan which allows you to choose from 6 different funds and does not have any premium allocation charges.

Subdued Growth of Deposits In Physical Assets

The Individual wealth in physical assets slowed down to 5.92 percent[2] in the financial year 2016-17, as compared to 10.3 percent from the year-ago period[2].

Real estate and Gold together held 92 percent[2] of the wealth in physical assets during the period. The growth in investments on a yearly basis, however, remained in single digit. The rise in investments in silver and other jewellery witnessed a double-digit growth on an annual basis.

The growth rate in physical assets has slowed down on the back of subdued investor sentiments and the high price of real estate which kept people from new purchases. Also, events such as demonetisation have adversely impacted the demand for realty projects.

Expectations Going Forward

Individual wealth in India is expected to almost double to Rs 639 lakh crore by March 2022, and about 63 percent of it will be contributed to the wealth in financial assets at a compounded annual growth rate of 14.6 percent.[3]

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